From San Diego union-trib
>August 31, 2000
After a four-month slide in the value of its shares, San Diego's Titan Corp. yesterday sued unnamed "unscrupulous short sellers" who allegedly pushed the stock into its decline.
Titan's price has been chopped in half, plummeting from $44.75 in June to $22.50 on Tuesday. News of the lawsuit helped boost the stock to $24.871/2 yesterday, but its market capitalization remains more than $1 billion lower than it was at the end of spring.
In a lawsuit filed in Los Angeles County Superior Court, Titan charges that short sellers posted anonymous messages on Internet bulletin boards, sent false financial analyses to investors, and used the news media to spread false statements and rumors.
The suit seeks unspecified damages and an injunction to halt any securities manipulation.
"Titan has drawn a line in the sand," said Gene Ray, the company's chief executive officer. "We will protect the interest of our shareholders. Titan will not tolerate irresponsible and illegal manipulation of its stock."
Titan is not alone in complaining of Internet attacks.
Just last week, Emulex lost more than $2 billion in market value in 15 minutes after an unnamed party -- suspected to be a short seller -- distributed a false news release saying that the company's chief executive had resigned and that it had been forced to restate its 1998 and 1999 earnings. Emulex stock bounced back after it was revealed that the news release was a hoax.
Titan's stock began its decline in May, when anonymous parties -- referred to as John Does in the lawsuit -- sent a negative analyst report to Titan's chief investors.
The report, which was not signed and did not contain the letterhead of any firm, carried a series of charges against Titan. Among other things, the report charged that Titan used "accounting gimmickry" to boost its financial statements. It accused Titan of inflating its revenues by shipping some of its products to a subsidiary in Africa. And it said Titan's Cayenta subsidiary "has the unusual distinction of being a money-losing software company."
Titan says each of the claims is demonstrably false. Eric DeMarco, the chief financial officer, said the company follows standard accounting principles, that it has never sold products to subsidiaries and that Cayenta is turning a profit.
Nevertheless, the charges made it onto the Internet, spooking investors into dumping their shares. Over the next few days, Titan's share price dropped 18 percent, from $33.50 to $27.50.
"When the stock came off its peak, there were definitely people shorting," said David Weinstein, an analyst with the Joseph Charles investment-banking firm in Florida. "The shorts were saying a lot of things that weren't true."
Short sellers make their money by borrowing shares on margin, then selling them in the expectation of buying them back after the price has gone down.
Thanks to positive news about Titan's food-processing subsidiary, SureBeam, the stock began to rebound in late spring, topping $44 on June 20. But it was hit hard again when an article in the Barron's financial weekly repeated many of the charges from the anonymous report.
Titan alleges that the short sellers "provided false information" to Barron's -- such as understating the price tag of the SureBeam equipment -- and then began engaging in short transactions that would coincide with the publication date.
Richard Rescigno, managing editor at Barron's, said "nobody plants anything in Barron's," although he declines to say whether the information came from short sellers.
"We never disclose our sources," he said.
Within a week, another anonymous report was sent to key investors, expanding on the themes contained in the Barron's article. And a series of messages began to appear in Internet chat rooms attacking Titan and urging investors to sell their stock in the company, which trades as TTN on the New York Stock Exchange.
"TTN is getting nailed with huge sale orders!!!!!" read one posting on an investment bulletin board operated by Yahoo! "Jump from the sinking ship!!!!"
"Institutions are selling big time!!!!!!!" read another.
The lawsuit charges that such postings were written by short sellers, "designed to frighten and intimidate shareholders into selling their shares of Titan and thereby further depress the market."
After conducting an investigation, Titan identified three dozen e-mail aliases that it believes could be fronts for short sellers. It has gained a subpoena to force Yahoo! to disclose the names of the authors.
"There's nothing illegal about selling stock short or expressing a negative opinion about a company on the Internet," said attorney Marshall Grossman of the L.A. law firm Alschuler Grossman Stein & Kahan, which is representing Titan in the suit.
"But it is just as illegal to spread false information to drive a stock down as it is to spread false information to pump a stock up," he added. "Here, we're seeing the ugly side of short selling."
Much of the speculation about the source of the attacks on Titan centers on Botti Brown Asset Management, a hedge fund in San Francisco that holds a stake in the company. John Botti, who heads the firm, declined to discuss allegations that his firm is involved.
Grossman said the firm is "high on my list for asking questions about the case. I don't want to identify anybody who is a suspect without any proof, but we do intend to get to the bottom of Botti Brown."
Titan and Emulex are not the only companies charging Internet rumor-mongering.
Lucent Technologies suffered a decline worth billions of dollars after a fake earnings message was posted on Yahoo! Similarly, stock in Tustin's PairGain Technologies skyrocketed in April 1999 after a fake news story, falsely attributed to the Bloomberg News Service, reported that the firm was going to be acquired for more than $1 billion. A PairGain employee later confessed to writing the release in a bid to drive up the stock price.
Such false postings do not always involve stock transactions.
Last week, Carlsbad golf-clothing maker Ashworth filed a suit charging that rival Cutter & Black in Seattle was posting vicious Internet messages. Cutter & Black denied the charges.
In March, Steven Cade, the head of the La Jolla Club golf company, admitted to using more than 27 Internet aliases to attack his competitor, Callaway Golf.
Copyright 2000 Union-Tribune Publishing Co. |
